The Hindu : Business : Crucial role of chief financial officers in decision making

Online edition of India's National Newspaper
Friday, Nov 05, 2004

Business

Business

Crucial role of chief financial officers in decision making

By Our Special Correspondent

CHENNAI, NOV. 4. Chief financial officers (CFOs) are well placed to become "chief risk managers" whose perspective and advice are crucial for the decision-making processes of the chief executive officer (CEO), according to Bala Balachandran, J. L. Kellogg, distinguished professor in the Kellogg School of Management, U.S.

The CFOs, with their potential for familiarity with "strategic choices of the business, core business processes and critical business issues" should become "internal consultants" to their company in identifying and managing risks, Prof. Balachandran said.

Participating through videoconferencing in The India Financial Forum (TIFF) 2004, a two-day conference on "emerging global trends in corporate finance", organised by the Confederation of Indian Industry-Southern Region (CII-SR), Prof. Balachandran said the demanding provisions of Sec. 404 of the Sarbanes Oxley Act of the U.S. could be exploited by Indian companies as a "trigger mechanism" in identifying and managing risks related to technology, finance, political environment and the market.

The conference, which, according to its chairman, K. Sridharan (Executive Director, Ashok Leyland), has been conceived to enable CFOs to emerge next-in-position to CEOs and possibly become CEOs, covers themes such as governance-driven corporate finance, accessing equity markets, emerging trends in debt financing, mergers and acquisitions, risk management and value creation.

T. Anantha Narayanan (Advisor, Ashok Leyland) suggested that corporate governance standards should be embraced by unlisted companies as also by NGOs (non-government organisations) through which companies often fulfilled their social responsibilities.

P. K. Choudhary, Managing Director of ICRA, which has undertaken corporate governance rating of Indian companies, said the fear of disclosure of confidential information considered crucial for their competitiveness in the market place dissuaded many companies from taking to governance rating. Multiplicity of regulatory agencies, too much of theorising and confusion between corporate governance and corporate social responsibility marked the emerging scenario. Rating helped companies to benefit from "regulatory tolerance" in case of suspected cases of misdemeanour, he said.

Deepankar Gupta (Jawaharlal Nehru University) said a code of conduct clearly defining what would not be allowed or countenanced would help corporates in working a system of grievance redressal. Internal ombudsmen should be preferred to external ombudsmen.

Corporate social responsibility should not "degenerate into charity" but should be competence-driven and add value to the business by way of new experience and perspectives, he said. He suggested, for instance, that hotel companies could run old age homes or kitchen for the elderly, and a battery company could promote garbage clearance that it in turn promote recyling of waste.

S. Naganath (Chief Investment Officer, DSP Merryl Lynch) declared that upside potential for oil prices had not been exhausted. Though India accounted for only 2 per cent of the world's gross domestic product and China 4 per cent (against 30 per cent in the case of the U.S.), oil consumption per unit of GDP was higher in India and China and hence these could be more seriously affected by the price trend. Foreseeing a possible appreciation of the Chinese currency in the next few months as a result of political pressures from outside, he suggested imparting flexibility to education and career choices in India as strategies to make the most of its human resource potential.

Sarath Naru (APIDC Venture Capital) suggested tapping of venture capital by established companies for developing promising non-core activities having a different risk-return profile, with the bait of conversion of investment into shares of the principal company.

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